Dec. 22 (Bloomberg) -- The competition between JPMorgan
Chase & Co. and Bank of America Merrill Lynch to be the top
underwriter of municipal bonds offered by auction helped
Massachusetts save $880,000 on a $400 million borrowing.

JPMorgan won the bid Dec. 20 for the general-obligation
debt maturing from 2015 to 2027, offering an overall interest
cost of 2.57 percent, according to state Treasurer Steven
Grossman. Bank of America Merrill Lynch was the second-lowest
bidder, offering 2.79 percent. With the Massachusetts deal,
JPMorgan vaulted ahead of Bank of America for the top
underwriter of competitive municipal bonds issued in 2011 by
$141 million, according to data compiled by Bloomberg.

“There’s always a certain amount of competition going on
out there,” Grossman said in a telephone interview yesterday.
“That’s good. We like competition. It didn’t surprise us to see
Massachusetts trading so well, given the fact that we made a lot
of promises in 2011, early in the year, and we kept the
promises,” such as boosting the state’s rainy-day fund and
raising the retirement age for employees.

Nationwide, about 20 percent of debt issued by states and
local governments is sold through competitive bids. Issuers post
public notices asking banks to make proposals and award the debt
to the bidder offering the lowest interest cost. The other 80
percent are done through negotiated underwriting, where
municipalities select a bank to price and sell the bonds.

Some academics, including University of Connecticut
professors Mark Robbins and William Simonsen, have found
competitive bond-issues result in lower borrowing costs than
negotiated deals.

League Tables

Wall Street pays close attention to the rankings in so-called league tables because top standing confers bragging
rights. Massachusetts’ bond issue was the biggest competitive
municipal-bond deal scheduled before year-end.

“We thought we had to be aggressive to win it,” said
Jeffrey Bosland, JPMorgan’s head of public finance.
“Massachusetts is important to us.”

JPMorgan structured its bid using coupons of 3 percent and
4 percent to attract individual investors because the debt was
priced closer to par and allowed the bank to lower yields,
Bosland said. The bonds had an eight-year call.

Bank of America won an auction for $500 million of
Massachusetts general-obligation debt in September. The Bay
State plans to use the money from this week’s bond sale to pay
for infrastructure projects.

Top Standing

JPMorgan won auction on $11.46 billion of bonds with a
“dated date” through year-end, according to data compiled by
Bloomberg. The dated date is the point at which interest begins
to accrue on a fixed-income security. Bank of America won $11.32
billion.

Pension legislation signed by Governor Deval Patrick in
November will raise the retirement age for most state workers
and crack down on pension “spiking,” which inflates future
retirement payments by manipulating overtime, unused vacation
and special compensation. The change is projected to save
Massachusetts more than $5 billion over 30 years.

The state has also boosted its rainy-day fund to almost
$1.5 billion, Grossman said.